The Inadvertent Dismissal: The Tale of an Administrative Suspension Growing Up to Become a Very Costly Constructive Dismissal

July 2015

Previously printed in the CCH’s Focus on Canadian Employment and Equality Rights (CEER) Newsletter.

Employers often use an administrative suspension as a tool for removing an employee from the workplace during the course of an investigation. But does doing so amount to a constructive dismissal? Thanks to the recent decision of the Supreme Court of Canada in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, employers have much clearer guidance on this difficult question.

The plaintiff, David Potter, was appointed by the New Brunswick Legal Aid Commission to serve as its Executive Director for a seven-year term. The relationship deteriorated and the parties began negotiating a severance agreement. Before an agreement could be concluded, Mr. Potter took sick leave. Shortly before his anticipated return, the Commission sent a letter to the Minister of Justice recommending Mr. Potter’s dismissal for cause. On the same day, the employer wrote to Mr. Potter to tell him that he was not to return to work “until further direction”. The employer placed Mr. Potter on an administrative suspension, with pay, on an indefinite basis. Mr. Potter responded by claiming constructive dismissal.

Against this factual backdrop, the Supreme Court of Canada considered the issue of when an administrative suspension amounts to a constructive dismissal. In its reasons, the Court confirmed that a plaintiff alleging constructive dismissal on the basis of a single event must prove each of the following:

the employer unilaterally breached an express or implied term of the employee’s contract; and

the breach substantially altered an essential term of the contract.

The Court noted that administrative suspensions are unique in the context of constructive dismissal analysis. Generally, the employee bears the burden of proving that a breach of contract has occurred. However, in Potter, the Court held that where the alleged breach is an administrative suspension, the analysis must be modified. The initial burden (the first step in the analysis) is on the employer to establish that the administrative suspension was “reasonable and justified” in the circumstances.

The Court established the following non-exhaustive list of factors which are appropriate to consider in determining whether a suspension was “reasonable and justified”:

This finding is a corollary of the basic common law principle that an employer cannot withhold work from an employee in bad faith or without justification.

the existence of a legitimate, good faith business reason for the suspension;

whether the business reason was communicated to the employee;

whether the suspension was with pay; and

the duration of the suspension.

If the employer cannot demonstrate that the administrative suspension was “reasonable and justified”, a breach of the implied term of the employment contract will be found. At this point, the burden will shift to the employee to prove that the breach was substantial (the second step of the analysis). The Court noted that in most cases where an administrative suspension is found not to be “reasonable and justified”, a finding that the suspension amounted to a substantial change is “inevitable”.

Turning to the facts of the Potter case, the Court held that the Commission’s suspension of Mr. Potter was not “reasonable and justified”. The Court was critical of the fact that the Commission did not communicate to Mr. Potter its reason for suspending him, questioned the purported business reason for the suspension, and took issue with the indefinite nature of the suspension, which reached 8 weeks in duration before Mr. Potter claimed constructive dismissal.

As a result of his constructive dismissal, Mr. Potter was entitled to the balance of the salary and benefits to which he would have been entitled had he worked out the balance of his seven-year term as the Commission’s Executive Director, a period of about 33 months.

Lessons for Employers

Employers can improve their chances of proving that an administrative suspension was “reasonable and justified”, and therefore not a constructive dismissal, by giving some thought to the following before placing an employee on an administrative suspension:

Have a Legitimate Business Reason: Employers must have a legitimate business reason to suspend the employee, even if he or she continues to receive pay. Employers should be prepared to demonstrate the reason is essential to the operation of the business. The nature or importance of the business reason will vary with the circumstances of the suspension.

Communicate with the Employee: The employee should be told the reasons for his or her suspension. Secrecy surrounding the administrative suspension may give rise to an inference that the employer was not acting in good faith.

Create the Contractual Authority to Suspend: Employers should consider including express authority for an administrative suspension in their employment contracts, or incorporating this right into their employee handbook or policy manual.